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REPORT ON CONDITIONS IN RUSSIA 

AND 


CONTRACTS of the RUSSIAN-AMERICAN 
INDUSTRIAL CORPORATION 

WITH THE 

SOVIET GOVERNMENT 


Submitted to the Board of Directors and 
Stockholders of the Russian-American 
Industrial Corporation 


Greetings: 

In accordance with the decision of the Board of 
Directors of the R. A. I. C., I left the United States 
in the early part of September, 1922, to revisit 
Russia for the purpose of completing our contracts 
with the Russian government and thus preparing 
for our actual participation in Russian industry. 
I herewith transmit such pertinent information as 
I was able to obtain in the course of this trip. 

What I witnessed in Europe and in Russia at this 
time has convinced me even more how necessary it 
is that America should participate in the economic 
reconstruction of Europe. 

Most countries on the European continent are on 
the verge of economic bankruptcy and unless a work¬ 
able understanding is brought about amongst the 
European nations, there is no escape from virtual 
economic chaos. 



Russia presents today a different picture from 
that of a year ago. A year ago, when I was there, 
the New Economic Policy (N.E.P.) of the Soviet 
government had not yet taken root in actual life. 
Now, it has been definitely established. It is giving 
shape to industry and to all departments of civil 
life. The restoration of freedom in trading has 
caused a special revival. 

Russian industry under the New Economic Policy 
is carried on in approximately the following manner 
The several businesses are organized mostly as trusts 
and syndicates. These are government-owned, but 
the policy on which they are operated might be called 
capitalistic. The industry itself is required to pro¬ 
vide for all its needs. There is room for initiative. 
Managerial ability receives full opportunity. Be¬ 
cause of this new condition in the clothing industry, 
we were compelled to make extensive readjustments 
in our contractual relations with the Soviet govern¬ 
ment. 

The clothing industry is now largely concentrated 
in the Clothing Syndicate. A year ago it was our 
plan to take over a number of clothing factories in 
Russia and to operate them with the aid of a mil¬ 
lion dollar investment. Now this plan would not 
work. With the clothing industry largely covered 
by the clothing trusts, we could either invest our act¬ 
ivities in a number of smaller units or participate in 
the combination of the industry. The inadvisability 
of the first alternative is quite apparent. We there¬ 
fore considered very carefully the second, namely, 
that the R. A. I. C. should participate in the clothing 
syndicate, which embraces for the present the trusts 
of Petrograd, Moscow, Kazan, and Nizhnii. The fol¬ 
lowing table shows the organization of the factories 
in the first three syndicated cities; the fourth, the 


clothing trust of Nizhnii, joined the clothing syn¬ 
dicate after the contracts were made. 


Number of Workers and Equipment in Factories Owned 

by Clothing Syndicate 



No. of 
Fac¬ 
tories 

No. of 
Workers 

No. of 
Office 
Em¬ 
ployees 

No. of 
Ma¬ 
chines 

No. of 
Working 
Hours 

Moscow Trust 

19 

10,053 

1,540 

6,082 

17,936,425 

Petrograd Trust 

11 

4,852 

637 

2,542 

7,496,612 

Kazan Trust. 

8 

3,528 

180 

1,694 

4,730,356 

Total of Moscow, 
Petrograd, and 
Kazan Trusts.. 

38 

18,433 

2,357 

10,318 

30,163,393 


Average number of workers in each factory, 485. 


Eighteen thousand four hundred thirty-three 
(18,433) workers and two thousand three hundred 
fifty-seven (2,357) office employees constitute the 
working force in thirty-eight factories, averaging 
547 employees per factory. It undoubtedly indi¬ 
cates the large industrial nature of the enterprise, 
that is, of the industry under the clothing trust. 

In fact, the Clothing Syndicate has concentrated 
on the factories that are of definite value and the 
most efficient. It is the intention of the Syndicate 
to take over more factories as capital on hand and 
general conditions warrant. In addition, the Cloth¬ 
ing Syndicate and local Trusts operate retail clothing 























stores in a number of cities and intend to open retail 
stores throughout the land, so that the middleman 
waste as between the producer and consumer may 
be eliminated. 

The factories of the Clothing Syndicate produce 
virtually all kinds of wearing apparel, for men, 
women and children, such as underwear, hats, caps 
and the like. 

The factories, raw materials, and liquid capital at 
the disposal of the Clothing Trust are valued at 
$9,000,000 (18,000,000 gold rubles). 

In our discussions it was agreed, however, that 
all the physical properties, such as land, the build¬ 
ings and the like, that belong to the government, 
shall not be included in the total of valuated assets 
of the Syndicate on the basis of which the appor¬ 
tionment of voting strength and distribution of divi¬ 
dends will be made. Only the raw materials and 
liquid capital, amounting at the time of the conclu¬ 
sion of the contracts to 7,000,000 gold rubles, are 
to be counted in for calculating earnings and returns. 
To these will be added the capital invested by the 
R. A. I. C. Thus the enterprise starts out with a 
solid material foundation. 

A joint inventory commission, on which the R. A. 
I. C. is represented with equal voting strength, was 
appointed. This commission will make an appraisal 
of the assets in terms of American dollars. 

After long conference, at which I was assisted by 
advice of counsel, a satisfactory contract was drawn 
up which is appended hereto. 

A careful study of the contract will show the 
opportunity of American investors to help in the 
rehabilitation of Russian industry, by supplying 
capital, and by participating in the management of 
the industry. As the “registration” of our charter 


in Russia shows, the R. A. I. C. is given the right and 
opportunity to participate in all industry and in all 
enterprises. On the capital at hand will depend 
our interest and our expansion into other branches 
of economic endeavor. 

Those who followed the different agreements en¬ 
tered into by the Soviet government with foreign 
corporations agree that ours is the most favorable 
contract for foreign investors ever made by the 
Soviet government. It is because of the fact that 
the R. A. I. C. is organized mainly for the purpose 
of being helpful in the reconstruction of Russian 
industry that the Soviet government saw its way 
to make our concession as attractive as it is. It 
is for the same reason that the Soviet government 
has agreed to the clause in the contract guarantee¬ 
ing the capital investment of the R. A. I. C. in the 
territory of the R. S. F. S. R. and also a return to 
the Corporation of a minmum dividend of eight per 
cent in American dollars on all investments. 

As the contracts clearly show, the Soviet govern¬ 
ment has assumed a definite obligation toward the 
R. A. I. C. In the first place, it guarantees a min¬ 
imum dividend of eight per cent to the corporation. 
This is not to mean that the government undertakes 
the regular payment of dividends. The Clothing 
Syndicate is to run its own business, and must pay 
the return on invested capital, out of its earnings. 
It is possible, however, that the Clothing Syndicate 
may not be able to meet its obligations for a time. 
If that happens, the Soviet government assumes as a 
state obligation the payment of the dividends to the 
Corporation. If within two months after the stipula¬ 
ted date of payment of semi-annual dividends the in¬ 
dustrial enterprise fails to meet its obligations, the 
Russian government will meet them, making pay- 


ment in American dollars at a bank designated by 
the R. A. I. C. 

I should like to offer the suggestion that the Amal¬ 
gamated Trust and Savings Bank of Chicago be 
made the agency through which all payments to 
our Corporation shall be made. 

Of course, it ought to be clearly understood that 
that obligation of the eight per cent dividend is to 
the corporation, not to the shareholders. The Board 
of Directors has the power to determine what divi¬ 
dends shall be paid to shareholders out of the net 
earnings of the R. A. I. C. 

Under the contracts, our investment runs for a 
term of three years, from the date of the inception 
of actual business with the Clothing Syndicate. At 
the end of this period we may, with due notice, 
withdraw. The Soviet government assumes all 
responsibility for the invested capital and accumu¬ 
lated undivided earnings and undertakes to make 
payment in American dollars at an American bank, 
at our direction. 

My account would not be complete without refer¬ 
ence to our system of management and certain 
phases in the industrial relationship within the in¬ 
dustry we are entering into in Russia. The man¬ 
aging heads of the various enterprises are selected 
by the workers in the industry. The choice has to 
be sanctioned by the economic authorities of the 
government. 

The Trusts and Syndicates are developing coop¬ 
erative restaurants, groceries and all sorts of supply 
agencies for the workers they employ, thus reducing 
the cost of living and enabling the workers to live 
better. The trusts have also secured from the gov¬ 
ernment large buildings in which they house the 
workers at a nominal cost. 


We have agreed to forward immediately $200,000 
for the first investment in the Clothing Syndicate. 
We have also already availed ourselves of the status 
of the R. A. I. C. in Russia and have entered into 
an agreement with the Industrial Bank of Moscow, 
under which we have the right of transmission of 
money into Russia to be paid there in American 
dollars, under our supervision. It is estimated 
that these operations, which will mean mainly 
small individual transmissions, will aggregate mil¬ 
lions of dollars annually. In these activities we will 
be of service not only to Russia, but to hundreds of 
thousands of citizens here, who are anxious to help 
their relatives and friends in Russia. We will pro¬ 
vide Americans with the channel for the transmission 
of American currency, not subject to the fluctuations 
in the Russian market. This, however, is only one 
aspect of our usefulness to which we may look 
forward. 

It is just to state that there is still a great deal 
of demoralization in Russian economic life. A great 
deal of its liquid capital has been destroyed as a 
result of war, revolution and intervention, and the 
task before the Russian government in the rebuild¬ 
ing of Russian industry is stupendous. I have, 
nevertheless, the utmost confidence in the ultimate 
reconstruction of Russia’s economic life. It has the 
advantage of being an agricultural country. A few 
good harvests will bring her back to the old position 
of the granary of Europe. 

Politically Russia is today stronger than ever since 
the revolution. The danger of foreign invasion does 
not exist today. The country is certain of political 
stability for a long time to come. 

Russia has organized an efficient army out of de¬ 
moralized and broken-up remnants of the old units. 




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R. S. F. S. R. 

The Chief Commit¬ 
tee of the Council 
of Labor and De¬ 
fense in Matters of 
Concessions and 
Limited Companies 

40 Tverskaya, 

Moscow. 

Tel. 18-21, 92-8G. 

November 4, 1922. 

No. 790/0 

CERTIFICATE 

This is to certify that the Russian-American 
Industrial Corporation (R. A. I. C.) in accordance 
with the decision of the Council of Labor and 
Defense of November 1 , 1922, enjoys the rights 
of a juridical person within the borders of the 
R. S. F. S. R. and of the allied republics. 

On these grounds the aforesaid company is 
entitled, in accordance with the existing laws to 
establish various industrial, commercial, credit 
and banking enterprises of every kind, to become 
a partner in Russian Industrial Commercial Trad¬ 
ing and Banking organizations and enterprises, to 
transact civil and commercial acts and operations 
and to appear as a party in the litigations in the 
courts of justice of the R. S. F. S. R. 

In its activities the R. A. I. C. is bound to 
submit to all rules and regulations pertaining to 
the activities of foreign companies in the R. S. 
F. S. R., those existing now as well as those that 
may be enacted in the future and in general to 
all decrees, decisions and rules in force in the 
territory of the R. S. F. S. R. 

President of the Chief Concession Committee , 

A. Lejava. 

Acting Business Manager , 

V. T. Orloff. 








It has proven itself capable of defense against 
foreign invasion, and now it is massing all its forces 
on economic activity. 

Those in power today are, insofar as can be dis¬ 
cerned, the most vital, if not the only organized, 
force in Russian life capable of regenerating the 
country. And there is no doubt in my mind, that 
if further changes in economic policy or otherwise 
will be needed, Russia will be courageous enough to 
make them. Nor do I doubt the good faith and 
readiness of the Russians to live up to the obliga¬ 
tions of the contracts with our Corporation. The 
highest authorities in Russia have assured me that 
all possible cooperation will be given to make our 
experiment a success. Throughout the many and 
long conferences I had with Nicolai Lenin and after 
them, I was impressed with his desire for cooperation 
from America and with his appreciation of the efforts 
of the R. A. I. C. The purpose of the R. A. I. C. 
is to help Russia, the key to the rebuilding of Europe, 
and because of it, I feel more than ever gratified that 
the contracts of the R. A. I. C. as well as its status 
in Russia under its charter, offer American workers 
and liberals the great opportunity for truly humani¬ 
tarian and constructive assistance at a time it is 
needed and most valued. 

Respectfully yours, 

Sidney Hillman. 


TEXT OF THE DECISION OF THE COUNCIL OF 
LABOR AND DEFENSE OF SOVIET RUSSIA 

No. 362/11 


The Council of Labor and Defense for the purpose of estab¬ 
lishing a connection between the economic organs of the 
Republic and foreign industrial workers’ organizations in the 
reconstruction of the normal economic life of the country, 
having duly considered the proposals made to the Russian 
Government by the Russian-American Industrial Corporation 
(R. A. I. C.) hereby resolves: 

1. To grant to R. A. I. C., in accordance with Note 1 to 
Article III of the Instructions on the Fundamental Property 
Rights (Investia V. Z. I. K. No. of 18/vi, 1922) all the rights 
of a juridical person within the borders of the R. S. F. S. R. 
and the allied Republics. 

2. To permit R. A. I. C., in concordance with existing laws 
to participate in Russian trading, industrial and credit or¬ 
ganizations and enterprises, and to establish such enterprises. 

3. To guarantee to R. A. I. C. in American dollars the 
capital invested by R. A. I. C. either at the start or by sub¬ 
sequent installments, in Russian trading, industrial and credit 
associations and enterprises, by agreement with the Supreme 
Council of Public Economy, in case the R. A. I. C. is excluded 
from the enterprise, and, if the money invested in shares 
should not be refunded to R. A. I. C. at the time provided 
in the Agreement with the Supreme Council of Public Econ¬ 
omy, to recognize such monies as the State debt of R. S. F. S. R. 
to be repaid to R. A. I. C. within two months time out of 
the state funds. 

4. To guarantee to R. A. I. C. the payment in American 
dollars of the dividends on the aforesaid capital at the rate 
of 8 per cent per annum to be paid out of the StateTreasury 
within two months time from the day on which the respective 
enterprise failed to pay dividends on the appointed half- 
yearly dividend dates stipulated in agreement between the 
R. A. I. C. and the Supreme Council of Public Economy. 

5. To guarantee to R. A. I. C. in case of withdrawal from 
any enterprise or organization, the payment in American 
dollars of undivided profits to which R. A. I. C. should be 




entitled by its shares, to be paid out of State funds within 
two months after the date for payment of such dividends in 
accordance with the agreement between the R. A. I. C. and 
the Supreme Council of Public Economy. 

6. R. A. I. C. has the right to demand the return of capital 
invested in the enterprises of the Supreme Council of Public 
Economy, but not before the expiration of three years from 
the date of the first investment. In case of the respective 
enterprise failing to return the amount invested, such sums 
are recognized as the debts of the R. S. F. S. R. to be repaid 
not later than one year from the date of serving rlotice of 
withdrawal. 


7. Capital invested by the R. A. I. C. (Article 3) is to be 
deposited at places named by the Supreme Council of Public 
Economy, and capital and dividends received by R. A. I. C. 
(Articles 3, 4 and 5) are to be deposited in places named by 
R. A. I. C. Said capital in case of taking out of the civil 
and trading circulation of the R. S. F. S. R. also dividends 
taken out abroad within two weeks from date of payment, 
shall not be subject to any deductions, and encumbrances, 
taxes, duties and imposts whatsoever. 


8. The Council of Labor and Defense instructs the Supreme 
Council of Public Economy to conclude on the basis of the 
present decision respective agreements for participation by 
the R. A. I. C. in various enterprises and associations of the 
Supreme Council of Public Economy and in particular the 
agreement confirmed by the President of the Supreme Coun¬ 
cil of Public Economy on October 30, 1922. 

9. All controversial points of law arising out of the activi¬ 
ties of the R. A. I. C. in the R. S. F. S. R. to be acknowledged 
as subject to decision by Arbitration Commissions and the 
law Courts of the R. S. F. S. R. in accordance with the laws 
of the Republic. 


Acting President of the Council of Labor and Defense, 

L. Kameneff. 


Secretary of the Council of Labor and Defense, 

L. Fotieva. 


Moscow, 

Kremlin, November 1, 1922. 
(Signed and Sealed.) 


MEMORANDUM OF AGREEMENT 


Entered into Between the Supreme Council of Public 
Economy of the Russian Socialist Federative 
Soviet Republic and the Russian-American 
Industrial Corporation 


In order to develop the industry of the Russian Socialist 
Federative Soviet Republic and to realize the aspirations of 
the American workers toward active participation and coop¬ 
eration in the economic upbuilding of the Russian Soviet 
Republic, the President of the Supreme Council of Public 
Economy, hereinafter called the S. C. P. E., as party of the 
first part, in the person of the President of the Council, 
P. A. Bogdanoff, and the Russian-American Industrial Cor¬ 
poration, hereinafter called R. A. I. C., in the person of the 
president, a citizen of the United States of America, Sidney 
Hillman, as party of the second part, conclude the following 
agreement: 

1. The S. C. P. E. grants the R. A. I. C. the right to par¬ 
ticipate in various governmental industrial commercial and 
banking organizations and enterprises which are controlled 
by the S. C. P. E. on conditions especially fixed in each case. 


2. For this purpose the S. C. P. E. determines for each 
case its share and form of participation in the enterprise; 
on its part the R. A. I. C. determines its share of participa¬ 
tion with the consent of the S. C. P. E. 

3. In the case of a joint creation by S. C. P. E. and R. A. 
I. C. of a new organization or enterprise the S. C. P. E. will 
allot and will turn over to such organizations or enterprise 
such shops, factories, workshops with all equipment they 
have, and also supplies of fuel, raw material, material in 
work and ready made goods as are necessary for its produc¬ 
tion, making of all the property so allotted an exact valua¬ 
tion; the participation of the R. A. I. C. is determined in 
conformity with Article 2. 



4. In the first place, the R. A. I. C. enters as a partner 
into the newly organized Syndicate of Clothing Industry. 
The participation of the S. C. P. E. in the partnership capital 
of the Syndicate represents a total made up: (1) by the 
combination of the net working capitals, after deduction of 
debts, of the government organizations of clothing industries 
of Petrograd, Moscow and Kazan, called in Russian “Mosk- 
vashvei,” “Petrodedjda” and “Tatodedja,” respectively, 
amounting in all up to five million (5,000,000) gold rubles; 
and (2) by the capital allotted by the S. C. P. E. as a long¬ 
term loan to the formerly existing syndicate of clothing in¬ 
dustry at the time of its original establishment. 

Note .—The capital allotted by the S. C. P. E. mentioned 
in this article forms a special capital of the syndicate 
on which per cent of profit are calculated on the same 
basis as on the partnership capital. 


5. The participation of R. A. I. C. in the Syndicate men¬ 
tioned in Article 4 represents an amount of One Million 
($1,0000,000) dollars, of which Two Hundred Thousand 
($200,000) dollars will be deposited by it within two months 
after the day of publication of the decision of the government 
defining the juridical status of the R. A. I. C. in the Russian 
Socialist Federative Soviet Republic, and the remaining 
Eight Hundred Thousand ($800,000) dollars as a first pay¬ 
ment out of the first sums received by the R. A. I. C. from 
the realization of the value of its shares in America. 

6. All rights of the partners of the Syndicate to as far as 
the Administration of the syndicate is concerned are dis¬ 
tributed between the organizations of the S. C. P. E. par¬ 
ticipating in the Syndicate on the one hand and the R. A. I. C. 
on the other hand, in proportion to the share of participation 
of each side in the partnership capital of the syndicate with 
the express condition that, in the number of the members 
of the Board of Directors of the syndicate, its auditing com¬ 
mittee and their respective candidates, not less than one rep¬ 
resentative of the R. A. I. C. shall be included. 

7. The payment of dividends to the R. A. I. C. is done by 
the Syndicate twice a year. 


8. In case the R. A. I. C. leaves the Syndicate it receives 
back within six months after its withdrawal in the currency 
in which the payments have been made all sums paid in by 
it for its shares; and also its share of undivided profits, 
not excepting such as might have been converted by decision 
of general meetings to reserved and special capitals. 

Note. —The day of the withdrawal from the syndicate is 
considered: (1) In case of a voluntary withdrawal—the 
day of serving a notice in writing; (2) in case of liqui¬ 
dation of the business—the day of approval by the gen¬ 
eral meeting of the Report of Liquidation Committee; 
and (3) in case of expulsion from membership—the day 
of the decision to this effect of the general meeting of 
the members of the syndicate. 


* To the S. C. P. E. in Moscow to this effect. 

* But not before three years after the first deposit. 


President of the Supreme Council of Public Economy , 
R. S. F. S. R., 

B. Bogdanof. 


President Russian-American Industrial Corporation, 

Sidney Hillman. 




Among the Subscribers to R. A. /. C. Stock are: 


Jane Addams 

Alfred L. Bernheim 

Mr. & Mrs. S. John Block 

Prof. Paul F. Brissenden 

Bishop & Mrs. William Brown 

Margaret Byington 

Stuart Chase 

Prof. Jean Conklin 

H. W. L. Dana 

Dr. Katherine Dodd 

Charles W. Erwin 

Elizabeth Glendower Evans 

Sarah Bard Field 

Elizabeth Gilman 

Arturo Giovannitti 

Dr. A. L. Goldwater 

Mrs. J. C. Guggenheimer 

Prof. Helen Hayes 

A. A. Heller 

Mr. & Mrs. Donald Hooker 
Inez Haynes Irwin 


Dr. Horace Kallen 

F. H. La Guardia 

Nikolai Lenin 

Alice Lewisohn 

Irene Lewisohn 

Mr. & Mrs. Max Lowenthal 

Mrs. R. H. Mencken 

Mr. & Mrs. Darwin J. Meserole 

Lydia Gibson Mestre 

Judge Jacob M. Moses 

Thomas Moorhead 

James Mullenbach 

Elsie Clews Parsons 

Raymond Robins 

George Roewer, Jr. 

Prof. Vida Scudder 
Max Senior 
Ellen Gates Starr 
Charles P. Steinmetz 
Lillian Wald 


Charlotte Anita Whitney 
Dr. Leo Wolman 


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